Could a Foreclosure Be Looming?
Here's How to Bite Back
You've heard of the housing boom. Get ready for the housing kaboom.
The nationwide run up in housing prices has forced a lot of Americans to take on a bigger mortgage than they should. Before the housing crunch, Americans already had very little savings and sizable debts. Add to that rising interest rates and the fact that in recent years lenders have been selling mortgages to increasingly leveraged folks, and you just might have a perfect storm of foreclosures.
Are you vulnerable?
For many of us it's easy to imagine a layoff or unforeseen expense derailing our financial balancing act. These are the questions you should be asking yourself to find out if you are at risk:
- Are your housing costs (mortgage, taxes, maintenance) more than a third of your income? This used to be a lender's standard, but increasing we have seen people's housing costs running as much as 50% of their income.
- Do you depend on two incomes to pay your mortgage? Two-income families are twice as likely to suffer a layoff. So if two jobs are needed to pay for housing, your mortgage is twice as vulnerable.
- Do you have little equity in your home? If you have enough equity in your home, you can refinance and buy some time, so to speak. If you do not, that option is off the table.
- Do you have too little savings? Homeowners who have can dip into it if their income is disrupted.
- Do you have an adjustable rate mortgage?
Protect yourself
Once you determine your vulnerability, here's what you can do to protect yourself, or more accurately, your house.
- Avoid interest-only loans.
- Manage your debt well so that you continue to establish good credit.
- Start an emergency fund. (What
is an emergency fund?) Even if you're leveraged, you should be able to find $25 a week or more.
- Create a budget that leaves you more money for savings.
- If you feel your home is in jeopardy, call your case manager at American Debt Counseling, Inc. We can help.
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